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3 Reasons the Tech Sector’s In Trouble & One Glimmer of Hope

The Daily Ticker
Daily Ticker
3 Reasons the Tech Sector’s In Trouble & One Glimmer of Hope

By Aaron Pressman, Yahoo! Finance tech writer

It’s not just PCs – the whole tech industry complex is having a rough year.

Everyone knows PC sales are in the dumps, displaced by tablets and even smartphones. But higher-end hardware, software and services were supposed to keep the rest of the tech sector cranking. Not happening. Oracle (ORCL) missed analyst estimates in its most recent quarter. Accenture cut its guidance for the rest of the year. Both reports prompted Goldman Sachs to slash estimates for IBM (IBM) ahead of its earnings. SAP (SAP) or Hewlett Packard (HPQ) could be next.


Sales in China and other emerging markets are tanking. Oracle said sales in Asia-Pacific were down 7% last quarter and Accenture projected weakness in Latin America for upcoming quarters. That’s part of what prompted Goldman’s IBM downgrade.

Related: China's "Giant Ponzi Scheme" Won't End Well: Jim Rickards

The strengthening dollar adds to the pain for US vendors, as it reduces the value of foreign sales. The tech sector garnered 54% of its revenue from overseas versus 30% for the average company in the Russell 1000 Index, according to Bespoke Investment.


A broken record for the past few years, but big corporate customers are cutting back spending on software and services, the highest margin businesses for Oracle, IBM and others. The federal government’s sequester cuts also hit spending. Analysts at JP Morgan last month slashed their 2013 outlook for IT spending growth in half to just 0.6%. Gartner cut its forecast to 2% growth from 4%.


Like the famous electronics chain that bragged its prices were “insane,” CEO Michael Dell is promising a scorched earth price cutting strategy as he takes his company private. Already, Dell (DELL) slashed prices in its server line to gain market share in the first quarter, hitting competitors that are remaining public and can’t ignore shareholder concerns. Dell’s server market share jumped 3 percentage points to 18%, while IBM, HP and Oracle all suffered shrinking share, according to Gartner.


What’s still working? Storage makers like Western Digital (WDC), Sandisk (SNDK) and Seagate (STX) have been gaining as other tech companies rush to build every more cloud data centers. And Google’s (GOOG) ad business keeps cranking along, now aided by the fast growing mobile and video segments.

To keep up with all the latest news in tech, follow Aaron Pressman on Twitter and Tumblr.

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